Yuan Forwards Weaken on Investment Flow Concerns, Export Outlook

Yuan forwards weakened before data
that is forecast to show investment inflows into China fell for
a second straight month in July as a global economic slowdown
weighed on exports.

Foreign direct investment may have fallen 2.5 percent from
a year earlier following a 6.9 percent slide in June, according
to the median estimate by four economists in a Bloomberg survey.
The figures could be released as soon as today, said Dariusz
Kowalczyk, a strategist at Credit Agricole CIB in Hong Kong.
Data today may show the euro area’s gross domestic product
droppped in July, while U.S. retail sales may have rebounded.
Europe and the U.S. are the top destinations for Chinese
exports, which rose the least in six months in July.

“China’s export outlook remains very uncertain with Europe
yet to show any signs of recovery,” said Kenix Lai, a Hong
Kong-based currency analyst at Bank of East Asia Ltd. (23) “The yuan
will likely trade weaker against the dollar as capital inflows
are slowing.”

Twelve-month non-deliverable forwards fell 0.04 percent to
6.4265 per dollar as of 10:25 a.m. in Shanghai, data compiled by
Bloomberg showed. The contracts traded at a 1 percent discount
to the spot rate, which declined 0.02 percent to 6.3629 in
Shanghai.

In Hong Kong’s offshore market, the yuan was steady at
6.3655. One-month implied volatility, a measure of exchange-rate
swings used to price options, was unchanged at 1.3 percent.

The People’s Bank of China set the yuan’s reference rate
0.02 percent stronger at 6.3443 per dollar today, raising it for
the first time in five days. The currency is allowed to trade as
much as 1 percent on either side of the central bank’s daily
reference rate.

China is devising rules to help foreign companies invest in
the nation’s strategic emerging industries, Economic Information
Daily reported today, citing an unidentified official. Overseas
sales climbed 1 percent in July from a year earlier, after an
11.3 percent increase in June, data showed last week.